Unit 6 Municipal Bonds Flashcards
An investor subject to AMT should invest in…
Public Purpose Muni Bonds
The bond counsel validates …
tax exempt status and legal authority of municipality to issue bonds.
A ________ legal opinion is preferred, which focuses on…
unqualified
federal law and federal taxes
Limited tax GO secured by
specific tax at a specified max rate.
Riskier than regular GO bonds
Overlapping debt applies to _____ bonds.
GO
Certificate of Participation
revenue bond where investors participate in lease payments
Feasibility study applies to…
revenue bonds. Used to gauge likelihood of generating enough revenue.
Bonds with a net revenue pledge pays
expense from gross revenue first, and then the debt
Additional bonds test
used to determine if issuer has financial strength to issue more bonds
Build America Bonds (BABs)
taxable munis where federal gov subsidizes 35% of the interest expense to bond holders (tax credit).
Auction Rate Securities:
long term variable rates bonds tied to short term rates
rated as long term
priced as short term
trade at par
interest rate resets periodically at the CLEARING RATE
Variable Rate Demand Obligations (VRDOs)
floating rate munis with coupon rate that resets periodically based on benchmark
usually has put features
interest rate resets handled by remarketing agent
TANS, BANS, and RANS
mature one year or less
offer liquidity
low rate of tax exempt interest
Tax anticipation notes (TANs)
finance current operations in anticipation of future tax receipts
Bond Anticipation Note (BANs)
raise short term funds that are repaid through muni pending bond issue
